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Saturday, 20 June 2015

Frontken: Profit Guarantee In TTES Acquisition

In my last post, I wrote about Frontken mainly because one blog reader asked for my opinion on it.

I must admit that I didn't study the company in detail. I am too busy with work lately, feeling a bit frustrated and thus, have not much time and mood in stock market.

As stated in my previous post, I always think that Frontken is a good stock even though I lost track with it since mid-2013. I missed the news of its Tanjung Bin contract.

I did hesitate whether to invest in Frontken in early 2015, when the stock was made popular by fellow contributors in i3investor.

I studied it briefly and finally, the lack of major contract after Tanjung Bin and the gloomy O&G industry caused me to shy away from it.

However, I missed one important information, which is the profit guarantee in the acquisition of 45% in TTES which was acquired in May 2014.

I wish to apologize to readers about this mistake, and feel obliged to write another article to correct it.

The rest of the story is, I missed the opportunity to make a good profit in a short time.

About the profit guarantee, it is stated in the SPA that the cumulative audited PAT of TTES for the financial years ending 31 Dec 2014 and 2015 shall not be less than RM8mil. If not, the vendor shall compensate Frontken for the shortfall.

Since Frontken holds 45% of TTES, then Frontken should get at least RM3.6mil net profit. Who knows TTES can deliver more than RM8mil in that period of time?

TTES's PAT shows CAGR of 88.5% from 2011 to 2013, though PAT in 2013 was just RM1.02mil.

As the vendor is so confident to give such profit guarantee, I think there must be some big contracts on-going and pending.

The acquisition by Frontken was just completed on 23 May 2014. Does it mean that Frontken will not get the profit before 23 May in 2014?

If this is the case, the amount should be very small anyway.

Even though crude oil price tumbled soon after the acquisition, and Petronas capex is reduced, Frontken will still bag the profit guarantee.

In general, Frontken seems to be a growing company since taken over by a German.

Taiwan's Ares Green is expanding. Even if TTES does not do well in 2015, it certainly will when the O&G industry rebound.

With ample cash, Frontken might acquire another assets or business in the future.

Who knows another big contract is on the way?

So, I think shareholders of Frontken need not worry too much about its long-term prospect.

On whether it is the right time to buy its shares, it depends on your own judgement and confidence.

Hi Bursa Dummy,Are you aware that the biggest German shareholder has sold off all his 27.6% of shares? I am feeling something fishy as he came in to turn around the company in 2010 and after the company business has seemed "picking up" (not sure if it is really picking up), he left the company... of course, there may be reason that he needs $$$ so he sold off for profit taking... but this is making me feel very uneasy if I should still invest in it... any thoughts to share?

Hi BD, I came to notice that DBAG (one of the German's famous fund) has deemed indirect interest in Frontken through CP Asia GMBH. Do you think they will further pump in fund into Frontken for further acquisition of O & G companies? Or they might in the midst to privatise Frontken? Your opinion is highly appreciated.